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Will domestic market absorb excessive production capacity?

03
Nov '08
Seriously impacted by economic crisis and a resultant slow growth in exports, Chinese textile enterprises are turning their attention towards the domestic market. But experts are skeptical as, when a large number of textile enterprises shift their attention to domestic markets, the textile industry in China will face at least 30 percent of excess production capacity, not counting swamping of foreign brands and products.

In the first nine months of the current year, China's textile and apparel exports reached US $132.6 billion, a year-on-year increase of 6.72 percent, an awful drop in comparison to nearly 20 percent growth achieved in the same period of 2007. In fact, whatever growth in value that is reflected is due to change in exchange rates.

If effect of depreciation of dollar is removed, China's textile and apparel has actually fallen by 2.7 percent in the first nine months of 2008 compared to the same period of last year.

Although China has a huge consumer base of more than 1.3 billion people, the influx of a large number of enterprises eyeing the local market is bound to lead to fierce competition and will be hard for China's textile industry to avoid price wars in the next few years.

Currently, China's ratio of textile exports and imports is 1:1. Preliminary estimates show that current size of the domestic market is about Yuan 600-700 billion while exports are almost Yuan 700-800 billion. When domestic and some foreign manufacturers sell their products in China's domestic market, value of deliveries in local markets is estimated to reach Yuan 1.050 trillion.

It can be certainly said that the domestic market will not be able to absorb the vast amount of products over and above its capacity leading to a supply and demand conflict and ultimately price wars.

If the above comes true, 30 percent of the existing production capacity will be eliminated, however over a period of three to five years or even longer. After that period, China's textile industry will rely mainly on domestic demand for volumes while foreign trade will be totally dependent on quality rather than volumes.

Fibre2fashion News Desk - China


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